Lost Contract Revenue

Lost Contract Revenue

Lost contract revenue refers to the financial loss incurred when a contract is not fulfilled as agreed upon, often due to a breach by one of the parties involved. This concept is closely related to lost profits, which are damages claimed when a seller would have earned profits if a buyer had not breached a contract.

Key Components

1. Breach of Contract: Lost contract revenue typically arises from a breach of contract, where one party fails to fulfill their obligations, leading to financial losses for the other party.

2. Calculation of Lost Revenues: To calculate lost revenues, one must determine the difference between the projected revenues (assuming no breach) and the actual revenues after the breach. This calculation is crucial for determining lost profits.

3. Lost Profits: Lost profits are calculated by subtracting the costs associated with generating the lost revenues from the lost revenues themselves. This measure helps compensate the injured party for the profits they would have earned if the contract had been fulfilled.

Example

Consider a scenario where a company contracts to sell 100 units of a product for $10,000. If the buyer breaches the contract, the seller can claim lost profits equal to the amount they would have earned from the sale, which in this case is $10,000.

Legal Context

In legal terms, lost contract revenue is often addressed in contract law, where the goal is to compensate the injured party for the financial losses incurred due to the breach. This compensation is intended to place the injured party in the position they would have been in if the contract had been fulfilled as agreed.